Investors sought shelter from the uncertainty in the traditional safe haven of gold, which rose to its highest level in a month of $US1693. Other industrial metals, many of which are bellwethers of global appetite for risk, fell out of favour.

“Its a continuation of what we have seen from the Federal Reserve with quantitative easing and an unlimited asset purchase program . . . they throw liquidity at systemic risk issues, and markets respond in kind," said Watermark Funds Management portfolio manager Justin Braitling.

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The defensive sectors of industrials, utilities and consumer staples were the best performing of the day, with consumer staples emerging in the top three performers after closing on Monday in penultimate position with a loss of 0.22 per cent.

Iron ore recorded a gain for the first time in eight days, rising 0.55 per cent to $US145.90.

A breakdown of the top-performing stocks revealed a shift away from risk back into defensives.

In a a dramatic reversal, Monday’s top performing stocks – National Australia Bank, ANZ Banking Group and QBE Insurance Group – closed on Tuesday as the biggest weights on the index, while retail lender Commonwealth Bank and large-cap miners BHP Billiton, Rio Tinto and Fortescue contributed to index gains.

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Mr Braitling attributed the shift in investor preference towards cyclical stocks – such as miners, which are generally riskier and lower yielding – to the enormous cost restructuring in the sector.

“We’ve seen several instances where new management has come in and recognised the growth outlook is weak, and they’ve attacked their cost structures accordingly," he said, noting moves at Boral, QBE, GWA Group and Rio Tinto.

“We’re three years into the recovery and companies are acknowledging the environment is different, is softer. . . it’s a new normal."

Healthcare fell for the second consecutive day, with bionic ear manufacturer Cochlear, blood plasma group CSL and cancer treatment delivery expert Sirtex among the biggest laggards of the index. The three stocks fell 2.13 per cent, 0.37 per cent and 4.78 per cent, respectively to $80.10, $53.95 and $11.70, respectively.

The sector has been volatile in the new year after rising more than 48 per cent over 2012.

Inflation data will be closely watched on Wednesday for any clues on the likelihood of further rate cuts from the Reserve Bank of Australia, which would be supportive for equity markets.

Raven Capital director Simon Robinson said he was not surprised by the weaker performance of certain healthcare stocks.

“I like healthcare, but everything has its price and a lot of these stocks appear to be pretty full," he said, adding that CSL’s price earnings multiple above 20 was “exceptionally high".

“Its not surprising that when we get into a ‘risk-on’ market that defensive assets come off."

A motley crew of telecommunications, financial services, retail, healthcare and information technology stocks made up the list of 11 companies that sat at or near 52-week highs as investors scrounged around for value amid the weakness.

The list has been dominated since December by insurers and cyclical industrials.